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Financial Services Law Insights and Observations

Maryland finalizes money transmitter regulation; adds agent of the payee exemption

State Issues Regulation Prudential Regulators Money Service / Money Transmitters Maryland CSBS

State Issues

On November 17, the Maryland Commissioner of Financial Regulation recently adopted edits to proposed regulations, Code Md. Code Regs., .03-.18, bringing Maryland generally in alignment with the CSBS Money Transmitter Model Law which has been recently adopted by several other states (covered by InfoBytes here, here, and here). Some provisions in the new regulation conform with the model law, while a few stand out as unique additions in Maryland.

For example, among the newly adopted regulations, amended Regulation .03 provides an exemption for persons appointed as an agent of the payee if (i) there is a written agreement between the payee and agent for payment processing, aligning with Maryland law; (ii) there is public recognition of the agent collecting payments on behalf of the payee; (iii) upon the agent’s receipt of payment, the payor’s obligation ends without risk; (iv) the agent is not serving in an escrow capacity; (v) the agent is not acting as an agent to more than one party; and (vi) the agent mandates prompt, unconditional payment without tying it to future events or performances. This agent of the payee exemption deviates from the model law’s version of the same exemption.

Additionally, amended Regulation .08 establishes corporate governance standards that require money transmitter licensees to maintain a framework that is commensurate with the size, operational complexity, and overall risk profile of the licensee. This standard also sets expectations around internal audit, external audit, and risk management functions of a license. While this concept is not provided for in the model money transmission law, it aligns with the CSBS model state regulatory prudential standards for nonbank mortgage servicers (covered by InfoBytes here).

The final regulation will be effective December 11, 2023.